Ana Foods reported $300,000 pretax accounting income in income before taxes for 2013, its first year...

Ana Foods reported $300,000 pretax accounting income in income before taxes for 2013, its first year of operations. Included in the income statement was an installment sale of property in the amount of $70,000. However, for tax purposes, Ana reported the income in the year the cash was collected. Cash collected on the installment sale was $30,000 in 2014 and $40,000 in 2015. The company also had $20,000 interest from investment in municipal bonds. The income tax rate is 35%. What is the income tax expense in the 2013 income statement?

a. $738,500

b. $87,500

c. $98,000

d. $112,000

Solutions

Expert Solution

Solution:

Income tac expense = (pretax accounting income - interest from investment in municipal bonds) * tax rate

= ($300000 - 20000) *35%

= $98,000

Hence option "c" is correct.

ekkarill92 answered 1 year ago

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